US CPI readings printed in line with expectations easing concerns over a potential acceleration in the pace of Fed hikes. The news saw US equities open higher while the US Dollar and US Treasury yields moved lower. However, later in the session risk sentiment was dented on the Tillerson sacking news with the move gathering momentum following news reports that Trump wants more anti-China tariffs.
To mark my 1525th issue of Tradernoble Daily Commentary I am offering a special 2 year rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day This offer is open to both new and existing members and if anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it made 66 points yesterday and is now ahead by 1018 points for March, having made 2256 points in February, 879 points in January, 946 points in December, and 823 points in November. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points.
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US CPI main readings were in line with expectations with both headline and core coming in at 0.2% m/m. The fact that we did not see a repeat of the strong January reading (+0.35%) in core inflation boosted risk appetite. After the softer than expected hourly earnings number last week, the new CPI readings failed to provide a reason for the Fed to increase its gradual approach to lifting the Funds rate. The annual Headline rate climbed 1 tenth to 2.2% y/y while Core was unchanged at 1.8% y/y. That said, looking at the data in more detail, it is interesting to note that the pace of core inflation has accelerated in recent months with the 3 month annual reading at 3.1%, weak CPI/PCE reads in 2017 will start dropping out of the annual calculations from March 2018, suggesting higher yoy inflation readings are likely over the coming months.
US equities opened the session in a positive move following the amicable US CPI report. But technology shares and financials weighed on US equity indices. News that President Trump had blocked Broadcom’s $117bn hostile takeover bid of Qualcom on national security grounds weighted on the tech sector while Financials headed south with the move lower in UST yields.
Later in the session, risk sentiment took a hit following news that President Trump had fired Secretary of State Tillerson and replaced him with CIA director Mike Pompeo. Pompeo is known as a sceptic of North Korea’s intentions and the appointment has been interpreted as a hard line shift in US Foreign Policy. After the resignation of Chief Economic advisor Gary Cohn, Tillerson sacking reinforces the view that Trump has a ‘’my way or the highway’’ agenda. The President seemingly wants to take a hard line on trade and foreign a policy and this view was further reinforced late in the session with Politico reporting that last week trade officials presented a package targeting $30 billion a year in China imports, but the president was not satisfied and asked for an even bigger number.
The late turn in risk sentiment has helped the USD recover its CPI induced losses leaving the BBDXY Index unchanged over the past 24hrs while DXY is 0.17% lower. Looking at G10 currencies, EUR is at the top of the leader board and after briefly trading above 1.24, the pair now trades at 1.2387. The Euro got some support yesterday after ECB Governing Council member Lane said ‘’There is no concern about the current level’’ of the EUR, and he was more concerned about its volatility. Sterling and the New Zealand Dollar have also outperformed the USD, on his Spring Statement, Philip Hammond , the UK Chancellor, said the UK economy is forecast to grow faster than expected but debt reduction remains the focus. Cable now trades at 1.3965, up 0.42%. Meanwhile NZD trades at 0.7325, after reaching an overnight high of 0.7355, up from 0.7290 this time yesterday, and near two-week highs.
The Canadian Dollar is the weakest G10 currency, down 1.03% and currently trades at 1.2955. The Lonnie came under pressure after dovish comments by Governor Poloz. Poloz said the central bank ‘’has concluded there remains a degree of untapped supply potential in the economy’’ and ‘’Canada may be able to have more economic growth without generating higher inflation’’. The BoC has raised interest rates three times this cycle and the market fully prices a fourth hike in July. Canadian interest rates also fell on the day.
The AUD traded to an intra-day high of 0.7898 after the US CPI amid a broadly softer USD environment. But in line with its risk sensitive nature, AUD has now given back all of these gains and some . AUD now trades at 0.7856, 0.25% lower in the past 24rs.
Looking at core global yields, US Treasury curve has bull flattened with the 10y rate down 1.8 to 2.826%, after reaching an overnight low of 2.813% immediately after the trade tariff news. The 30y tenor is 3bps lower at 3.10%. Other benchmark yields have also traded lower with the 10y Bund, down 1.3bps to 0.619% and 10y UK Gilts, down 0.7bps to 1.487%. Gilts were supported after news reports suggested that market expectations are for the UK Debt Management Office to slash its issuance target for the 2018-2019 fiscal year by 10.6% to 102.9bn.
Last but not least, commodities had a mixed session, iron ore is up 1.3%, but oil ( -1.14%/-0.60%) and Met coal are down (-0.80%).
This morning on the Economic Front we already had the release of Final German CPI for February which came in as expected with a +0.5% print. Next we have Euro-Zone Industrial Production and Employment at 10.00 am and 10.45 am respectively. This is followed at 12.30 pm by US Retail Sales and PPI. Finally at 2.00 pm we have Business Inventories.
Speaking wise today we have ECB Vice President Constancio and President Drahi both speaking in Frankfurt at 12.30 pm and 1.00 pm respectively.
March S&P 500
This is my last day for trading the March Contract as I will roll to the June Contract tomorrow. Yesterday my S&P plan worked well with the market trading lower to my 2772 buy level before having a nice 8 handle rally and this move higher enabled me to cover this position at my revised 2776 T/P level and I am now flat. Yesterday the S&P traded to a high of 2802 post the US CPI release before getting hit hard into the close by falling over 40 Handles and this moved lower led to a significant downside Key Day Reversal. Despite this KDR I am reluctant to chase this market lower as the S&P has strong support from 2755/2763 and today I will be a buyer in this area with a 2749 stop. If I am taken long and subsequently stopped out of this position I will be a more aggressive buyer from 2735/2745 with a 2728 stop. A break and close below 2735 is a sell signal. Given how close we are to near term support I do not want to be short the S&P at this time.
EUR/USD
I am still flat the Euro which never came close to my buy level yesterday before rallying. With Dragi speaking this afternoon I am reluctant to chase this market higher and will only raise my buy level slightly to 1.2280/1.2330 with a 1.2245 stop. Remember a break and close below 1.2255 is a sell signal.
June Dollar Index
Unfortunately I was stopped out of my average 89.55 long Dollar position at 89.15. The only good thing about this loss is that most members do not trade this Index due to the persistent wide spread used by the various spread betting firms. This morning I have bought the Dollar here again at 89.25 with a 88.85 tight stop and a T/P level at 89.70 as I look to make up for my Dollar loss yesterday.
March DAX
My DAX plan also worked well with the market trading lower to my initial 12340 buy level before rallying 40 points where we traded sideways for about an hour before getting hit hard in the last two hours of trading. This move higher enabled me to cover my long position at my revised 12353 T/P level as emailed to my Platinum Members and I am now flat. The DAX traded to a low of 12115 before already bouncing 100 points this morning proving yet again how difficult it is to be short for any length of time in any equity market. This 12115 low was 350 points off yesterday’s high print and is a key level for the market going forward. Given the significance of this pivot point I will now look to buy the market on any dip lower to 12070/12130 with a 12025 stop. I still do not want to be short the DAX at this time.
March FTSE
My FTSE plan worked well with the market trading lower to my initial 7175 buy level before rallying to my 7200 T/P level and I am now flat. Subsequently the FTSE got hit hard with this move lower enhanced by the renewed strength in Sterling. The FTSE has key support at 7100 where we bottomed late yesterday and today I will be a buyer on any dip lower to 7070/7110 with a 7040 stop. The 7190/7230 is key resistance and today I will be a seller in this area with a 7255 tight stop.
Dow Rolling Contract
My Dow plan worked well with the market trading lower to my 25080 buy level before rallying over 100 points. As my three US Indices all got hit at the same time I used this rally to cover my long Dow position at my revised 25100 T/P level and I am still flat. Just like the S&P above the Dow also had a significant downside Key Day Reversal yesterday. However for me to turn bearish I need to see a break and close below the 24750 level, otherwise I will continue to be a buyer on dips. Today I will again look to buy the Dow from 24840/24970 with a 24730 stop.
March NASDAQ
My NASDAQ plan also worked well with the market trading lower to my initial 7060 buy level before bouncing 50 points and I used this rally to cover my long position at 7068 and I am now flat. Today I will again look to buy the market on any dip lower to 6960/7010 with a 6915 stop.
June BUND
I am still flat the BUND in what has been an extremely narrow trading range for the past two weeks. Today I will move my buy level higher to 156.75/157.15 with a 156.45 stop.
Gold Rolling Contract
I am still flat the Gold market which came close to my buy level before rallying late in the afternoon. I am not going to chase this market higher and I will leave my buy level unchanged at 1299/1308 with the same 1292 stop.
Silver Rolling Contract
No change as I am still long Silver at 16.66 with the same 17.05 T/P level and 15.90 stop. Again if my second buy level at 16.25 is filled I will lower my T/P level to 16.70.
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